TCFD Publishes 2023 Status Report

TCFD published a review of how over 1,300 companies and financial institutions are progressing in their reporting of the framework’s 11 recommendations. This included a survey and analysis of publicly available TCFD reports for over 100 asset managers.

Key findings

Coverage of recommendations

Almost two thirds of the asset managers who responded to the survey are currently reporting against more than five of the 11 recommended disclosures, but only 15% are reporting against all 11 recommendations. While this was more than the 58% of public companies reporting against more than five recommendations, there is clearly still some way to go.

Rationale for reporting

The main reasons firms gave for reporting to TCFD were because they deem climate risks material to their business, and due to client requests.

Amongst our clients, investor request is certainly a key reason for reporting, alongside the regulatory requirement for in-scope firms to report. As we’ve said before, many firms are now opting to report despite not being in-scope, mostly due to their own clients’ requests but also in advance of either coming into scope (due to AUM size) or anticipated scope changes (i.e. expansion of mandatory scope to cover smaller companies and firms). Boosting their PRI score is another reason some firms are choosing to align with TCFD outside of the mandatory scope as TCFD-related PRI indicators can equate to around 20% of the PRI score for the PGS module.

Reporting against the recommendations

The review found the recommendations firms are most commonly reporting against are:

• Strategy A - Descriptions of the material climate-related issues identified.

• Metrics and Targets A – Disclosure of climate-related metrics.

• Governance B - Management’s role in assessing and managing climate risks and opportunities.

• Risk Management A - Risk identification and assessment processes.

The recommendation with the lowest level of reporting was:

• Strategy C - Resilience of strategies under different climate-related scenarios (though 32% of asset managers indicated they were planning to report on this in the future).

Reporting on resilience (Strategy C) requires scenario analysis, which for most firms means engaging a third-party data provider. Factoring in costs and lower levels of data coverage, particularly in private markets, completing this element is much more challenging compared to the Governance and Risk Management recommendations. Similarly, while a high proportion of firms are reporting the climate metrics they’re using (Strategy A), fewer are disclosing their actual emissions (Strategy B), particularly amongst smaller firms – see Figure 1.

Metrics

The TCFD review found that firms are most commonly reporting the following metrics:

• GHG emissions associated with AUM; and

• WACI (weighted average carbon intensity) for each product or investment strategy.

The least reported metric was the extent to which assets under management align with a well below 2°C scenario and targets related to GHG emissions. As with reporting on scenario analysis, this is a more technical ask, reflecting the nascency of emissions target setting across the industry.

Reporting challenges

The review found that the most common challenges to reporting for firms were:

• Insufficient information from investee companies, both in general and especially for reporting on metrics and targets.

• Lack of methodologies, especially for metrics and targets.

• Lack of resources and expertise were also reported to a lesser degree.

The least identified challenge for reporting was a lack of board or senior management support, though this may be explained in part by the fact all those in the review have indicated an interest or existing participation in TCFD.

Size of managers

Unsurprisingly given scope requirements and resource levels, the largest asset managers — those with more than $100 billion in AUM — have the highest percent of reporting on each of the 11 recommended disclosures.

However, the report notes: “smaller asset managers do not necessarily report less than larger ones. For example [as shown in Figure 1] asset managers with between $1 billion and $9 billion in AUM have higher levels of reporting for eight of 11 recommended disclosures than asset managers with between $10 billion and $99 billion in AUM. Notably, only 8% of asset managers with between $10 billion and $99 billion in AUM report on Strategy c) compared with 27% of asset managers with between $1 billion and $9 billion in AUM and 24% for those with less than $1 billion in AUM”.

Figure 1: Asset managers reporting to TCFD by AUM. 2023-Status-Report.pdf (bbhub.io)

Reporting format

The report also found that most asset managers are using their sustainability reports or reports available only to their clients to communicate their TCFD information. A smaller number were found to be reporting through climate-specific reports while very few are reporting via their financial filings. This reflects our experience with clients, with many combining TCFD information with other sustainability topics.

For more information and insights on TCFD and other ESG topics, please get in touch.